Crunch time is approaching.
As the UK edges closer to leaving the European Union with a commitment to end freedom of movement, home secretary Amber Rudd must set out Britain’s post-Brexit immigration policy.
We need a grown-up debate on immigration but too often, instinct instead of evidence has guided the discussion.
Pundits claim that immigrants depress wages and steal jobs, yet multiple studies find that immigrants have had little impact on jobs and pay.
There is some evidence that immigrants lower wages for the lowest paid, but this impact is small at most. King’s College London’s Jonathan Portes points out that the best estimate of the impact of EU migration since 2004 amounts to a reduction in annual pay rises of about a penny an hour for the lowest paid workers.
Others worry that migrants will be a drain on the public purse, but they pay in significantly more than they take out. The NHS may be under strain, but research from Oxford University finds no evidence that migrants lengthen average wait times.
So what should Britain do?
Rolling EU migration into the current non-EU system is a non-starter. It might allow the Prime Minister meet her much maligned “tens of thousands” net migration target, but it would come at significant economic cost, creating acute labour shortages for employers and pushing up prices for consumers.
The home secretary has the unenviable task of filtering through a range of unconventional proposals, from “barista visas” as proposed by Migration Watch UK, to Policy Exchange’s suggestion that migrants working anti-social hours be given special preference.
It is easy to mock either suggestion, but they highlight a real problem. Whitehall is ill-equipped to determine the sectors and jobs where workers are most needed.
Theresa May’s objection is that points systems facilitate rather than restrict migration. But there are other problems. It would rely on the government, rather than employers, assessing the UK’s employment needs. In fact, Australia and Canada are moving away from pure points-based systems due to their tendency to attract workers who look great “on paper” but in practice are poor fits.
Rather than doling out visas to those industries that lobby the hardest, we should sell work permits to the employers that bid the most. If immigration numbers are to be restricted, we should use the best tool we have for allocating scarce resources to their highest value uses: the price mechanism.
Under our proposal, businesses would bid for a limited supply of work visas. Once an employer is in possession of a permit, she would be free to hire any foreign worker, conditional upon security checks. Permits would be tradeable between employers and workers would be free to move across employers with valid permits.
The Migration Advisory Committee would advise, or ideally set, the number of visas auctioned, and there would be separate auctions for high-skilled and low-skilled immigrants. The proposal would only apply to economic migrants – there would still be other paths to the UK for students, refugees, and family reunification.
The key advantage of relying on market-determined prices rather bureaucrat-decided points is that they ensure that visas go to the employers that value foreign talent the most. And by allowing firms to buy and sell visas post-auction, employers can flexibly adapt to changing economic conditions.
Changes in permit prices would act as a signal to increase or reduce the numbers of permits available in auctions in future years.
Auctions would also raise revenue that could be used to directly address voters’ concerns about immigrants placing additional strain on public services, or to top up the wages of low-paid workers through tax credits.
Some argue that this is unfair. Yet almost any restriction on economic migration could be construed as unfair. This proposal at least ensures that the migrants who can make the greatest economic contribution to the UK are prioritised.
Others may object that this proposal is morally repugnant. When the Migration Advisory Committee suggested auctioning investment visas, one lawyer complained that it would create “an EBay culture”.
Yet money already changes hands. Employers pay an Immigration Skills Charge and workers can pay upwards of £1,000 in visa application fees. Thousands more goes to immigration lawyers.
An auction system would allow the government to streamline the process, make it more responsive to the needs of businesses, and capture funds currently spent on legal costs.
We have a unique opportunity to create an immigration system that boosts the economy and restores trust. We should seize it.